Memphis eyes shifting tax collection duties

Tax Collector Charlotte Mays calls delinquent property owners from her cubicle in the Shelby County Trustee's office to inform them that their taxes are past due. The City of Memphis has worked out a deal to pay the county trustee's office to collect back taxes. (Jim Weber/The Commercial Appeal)

Tax Collector Walter Mathes sorts though a stack final notices of delinquent taxes. The City of Memphis has worked out a deal to pay the county trustee's office to collect back taxes owed by city residents.. (Jim Weber/The Commercial Appeal)

The city of Memphis is poised to move forward with a plan to allow the Shelby County Trustee to collect current and delinquent taxes for the city.

Chief Administrative Officer George Little said the City Council will be briefed Tuesday on a plan to allow trustee David Lenoir to collect current and past-due taxes for an annual fee of $1.25 million.

The city recently informed Linebarger Goggan Blair & Sampson, a Texas-based delinquent tax collecting firm, that it does not plan to renew the company's contract. The deal the city will brief council members on essentially makes the trustee the new contractor for the collection of taxes.

"It's a proposal to allow the trustee to take over as a contractor," said Little. "They would be a contractor like Linebarger is a contractor. The only difference is they would collect current taxes as well as delinquent taxes."

Lenoir, whose office collects all Shelby County taxes including those from Memphis residents, said he could increase collections and save taxpayers money through greater efficiencies. Memphis residents pay property taxes to city and county governments. Current Memphis taxes go to the city treasurer's office while current and delinquent Shelby County taxes go to the trustee's office.

."I certainly think it would be a win-win if the city does move forward on this," said Lenoir, the fourth trustee in a row to propose collecting Memphis taxes.

Technically, Wharton could contract with Lenoir without council input but Little said the administration wanted the council to be made aware because the switch could affect employees and have budget implications.

Little said the deal would produce savings over the long term. Roughly nine to 12 city employees in the treasurer's office would lose their positions. However, the city has enacted a hiring freeze to make sure the affected employees can move into other vacant positions in city government.

Little said the deal would essentially pay for itself through increased collections, penalty and interest paid by tardy taxpayers, and through efficiencies.

"This whole deal is supported by the revenue that is collected," said Little.

Linebarger has collected about $190 million for the city since 2004. Its contract expires Dec. 31 and the firm has come under criticism for years from council members, delinquent taxpayers and attorneys.

The firm won a professional services contract — which did not require a bid process or council approval — from former mayor Willie Herenton in 2004.

The firm's primary target is delinquent property taxes on homes and businesses. The debts must be 17 months past due before the city turns them over to the firm. Under the contract, the city does not pay Linebarger any direct fees. The firm makes its money by charging tardy taxpayers fees in addition to the taxes they owe.

The fees charged by Linebarger have drawn multiple lawsuits, including an ongoing federal class-action suit that could affect as many as 60,000 people who paid a 20 percent fee the company charged.

The issue in court is whether Linebarger can charge a 10 percent fee or a 20 percent fee for collecting the delinquent taxes.

A state law says attorneys pursuing back taxes cannot receive compensation greater than 10 percent of all delinquent fees collected. Another statute says a 10 percent penalty can be imposed on those whose taxes are delinquent, and that the penalty will go to the attorney suing to collect the back taxes. Linebarger has interpreted that wording to allow for a total fee of 20 percent, while the class-action plaintiffs say the two statutes limit the fees that can be charged at 10 percent.

"There will still be penalties and interest for paying late but what won't be there are those extra fees Linebarger charged, so it will be less onerous to taxpayers," said Little.